A tiny hapu has been left "gob-smacked" at winning a battle to stop a United States-owned company from subdividing a third of the country's largest barrier island.

Blakely Pacific, a subsidiary of US forestry giant Port Blakely, yesterday announced it had withdrawn an appeal of an Environment Court judgment that overturned a decision granting resource consent for the development on Matakana Island, which shelters Tauranga Harbour.

The company, which holds a forestry investment on the island and in several other New Zealand properties, had proposed a subdivision of 50 high-end properties stretching 7km up the island.

In the face of opposition from local iwi, the Western Bay of Plenty District Council granted resource consent for the 1925ha venture in 2009.

In a surprise decision last November, Judge Jeff Smith backed the iwi, ruling the development would be of little benefit for the Maori who live on the island or the general public.

In announcing the company's decision to shelve plans yesterday, Blakely Pacific managing director Phil Taylor said the company had reviewed its performance to make sure it was making the best use of its land.

"We've decided that what's best for us and our shareholders right now is to stick to our core business, and that's forestry."

Iwi representative Donna Poka was "blown away" when told of the decision in a meeting with Mr Taylor last week. She told the Herald it effectively ended a hard-fought battle, in which iwi had only been able to front an expert witness and a case planner "who was pretty much our everything" for court.

"We are just over the moon, just gobsmacked.

"It's been a hard journey for our whanau but we are relieved they have decided to go back to forestry."

Over the past year, iwi on the island also had to deal with fallout from the Rena disaster, which littered beaches with container debris.

Ms Poka said it was now hoped that other forestry companies on the island would steer away from property developments, "but time will tell".